By Adisa Adeleye

THE week that the Bureau of Statistics announced the healthy state of the Nigerian economy (with impressive growth rate of 6.3 per cent also carried the pleasing news of the recapture of Bama (in North-East of Nigeria) by the gallant security forces from the ravaging Boko Haram insurgents.

The government of Borno State, full of hope, did not admit that Bama fell to the insurgents.   Such is the nature of great Nigeria, always full of pleasant news, to lift up the depressed souls of the people.

It is not a surprise that the local economy whose real sector is starved of developmental capital because of high cost of funds could be facing the problem of excess liquidity.   The surplus funds are designated as unnecessary for normal banking operations at the period to avoid inflation.

The fight against Inflation, the arch-enemy of economic stability is a mortal one by the Central Bank.   Since the core mandate of the Central Bank is to control inflation through a policy of price stability, any sign of surplus funds in the banking system would not be allowed. irrespective of source and need.

The oppressive but offensive weapon of the almighty Central Bank is the “mopping-up” act.   This has something to do with the issue of Treasury Bills at the rate which is often higher than the Monetary Policy Rate (MPR) – its own rate of lending to the deposit bank is 12 per cent.   Thus, a Naira surfeit in the banking operations is anathema to the members of Monetary Policy Committee (MPC) and officials of the Central Bank (who are suspected to be disciples of the classical economists of pre-Keynesia era).

While it is agreed that excess funds in the banking operations may allow banks to increase their credit base   and offer loans and credits to the extent that the purchasing power is so extended to creat a boom and subsequent inflation, which is bad for the economy.

But the argument of the Central Bank seems to agree with the usual layman‘s understanding of ‘inflation‘ as “too much money chasing too few goods”.   It means that any increase in money supply would impact directly on the prices of goods, thus causing inflation.   It may be argued that reduction in the supply of money through mopping up excercise or increase in banks‘ lending rates would prevent inflation.   Events have proved this concept to be an illusion.

It must be pointed out that even the ardent disciples of the ‘classical economics‘ agree that increase in supply of money (loanable funds) would tend to effect lending rates downwards and encourage investments.

The better approach to mopping up operations of the Central Bank is to reduce its monetary policy rate (12%) down and allow excess funds (which it has created) to form bases for the deposit banks to extend cheap credits to the critical real   sector of the economy even at the risk of slow inflow of foreign investments.

A major source of excess liquidity in the banking system has been attributed by a respected columnist (Henry Boyo) to the monthly injection of naira value of dollar proceeds of oil due to the constitutional recipients.   He suggested the use of ‘Dollar Certificate‘ instead of paying additional converted funds into their bank accounts.

There is no doubt that this concept would instantly stop the naira surfeit in the banking system; strengthen the national currency, encourage industrial development through access to necessary modern equipment and spare parts.

However, as beautiful and rational as the concept of ‘Dollar Certificate‘ is, the Nigerian factor would certainly work against its success.   If oil money is seen as funds for infrastructural development (import of essential equipment and spare parts), the idea would work.   As oil money is perceived as the funds for conspicuous consumption and waste, the ‘Certificates would be exchanged as soon as they are created.

The nature of the structure of the Nigerian economy is based on sharing of the oil money with little emphasis on internally generated revenue.   None of the three tiers of government could survive in its present state without the monthly sharing of petro dollars.   It would have been a better economic system if it is gloriously structured that oil money would be available for infrastructural development for raising the productive capacity and standard of living of the people.

The concept of ‘Dollar Certificate’ is a better alternative to the `mopping-up` operation being stubbornly followed by the Central Bank,  which is wasteful, unproductive and has no direct bearing at the developmental needs of the country.   Its cardinal objectives of reducing inflation, has added to the problem by restricting loans and facilities through the rising lending rates to the productive sectors of the economy by the banks.

Another potential cause of inflation, according to the Central Bank is the expected rising expenditure for 2015 elections by government and politicians.
There is no doubt that in Nigeria, elections are expensive, economically wasteful, especially on the politicians‘ side, through what was manifested in Ekiti election as ‘stomach infrastructure‘ – funds allocated to appease and encourage voters to play the political game.

These might include bread, rice and textile materials, and as it happened recently in Osun State, kerosene and other petroleum products.   In some cases, monetary inducements might not be excluded.

The critical defence of electoral lavish expenditure is that if local materials and not imports are the direct beneficiaries, the expenditure might not be considered economically wasteful.

Since the resolution of excess liquidity in the banking operations has not yielded to any innovative method by the Central Bank and the wise suggestion of the ‘Dollar Certificate‘ could be affected by the fear of flight of capital, etc (afterall, dictator Abacha was able to get Nigerian dollars into different foreign accounts), it is better to look at other options.

It could be said that the Nigerian economy is lucky to be blessed with the injection of fresh funds (capital) every month.   The oil money should constitute the engine of growth through the policy of ‘cheap money and not the current tough monetary stance which is retrogressive.

And as to the problem of unemployment, the central authorities have no option but to take steps to vary the volume of aggregate expenditure.   You need not mop up excess funds but to direct such funds into productive investments.